President Barack Obama Monday fiercely defended one of the most controversial elements of the administration’s new rules for Wall Street, the creation of a new consumer watchdog for credit cards, mortgages and other financial products.

Known as the Consumer Financial Protection Agency, the new consumer agency was the first specific policy proposal Obama mentioned in his speech to the financial industry at Federal Hall in Manhattan.

He took financial industry critics who claim it would actually restrict consumer choice and make it harder for people to get credit.

“Nothing could be further from the truth. The lack of clear rules in the past meant we had innovation of the wrong kind,” Obama said, arguing that financial firms competed over which could do a better job tricking consumers into buying poorly understood products.

“By setting ground rules, we’ll increase the kind of competition that actually provides people better and greater choices, as companies compete to offer the best product, not the one that’s the most complex or confusing.”

Obama’s continued support for the CFPA comes at a critical time for the proposal. On the House side, moderate Democrats remain uneasy about the scope and power of the proposed watchdog, and their concerns have helped delay a mark up on legislation.

In the Senate, Banking chairman Chris Dodd is negotiating with a skeptical ranking Republican, Sen. Richard Shelby of Alabama.

But Obama’s speech didn’t quell criticisms from key opponents.

“The so-called Consumer Financial Protection Agency would in fact be a massive and expensive new government bureaucracy that, in the name of consumer protection, would ration credit and allow fewer financial choices for consumers,” said Rep. Spencer Bachus (R-Ala.), the top Republican on the House Financial Services panel.